Monday, January 26, 2015

It is easy to think of the internet as a mature medium, especially for those who were born into the internet era. However we are still at the earliest of stages. We are where radio was in the 1930’s and where TV was in the 1950’s: the first signs of the future markets are in place but the real maturation is yet to come. The greats of those early days, the Marconis and the RCAs, are now long gone but at the time they looked like they would rule forever. A similar long view should be taken to the internet. The dominant powers of the web (YouTube, Google search, Amazon, Facebook) may appear to have unassailable market leads but their time will come. Using more recent history, there was a time when AOL and MySpace looked irreplaceable. So why does all this matter to YouTube? The problem with absolute power is that it corrupts absolutely. YouTube, like those other dominant powers, has fallen victim to hubris. It is behaving like the unregulated de facto monopoly that it is. And in doing so it is taking its creators for granted. Right now that is bad for creators. Soon it may be bad for YouTube too.

It Is Time For YouTube To Reassess It s Relationship With Content Creators

Online video is truly coming of age. YouTube was one of the ice breakers and remains one the very biggest web destinations but the world is changing. YouTube has changed too of course, migrating skate boarding dogs, through music video to fostering a generation of YouTube stars like PewDiePie, Zoella and Smosh. But just as YouTube had to reinvent itself in the wake of the mid form revolution driven by Hulu et al so the time has come for another reinvention, but this one requires a change in business practices rather than product innovation. Most crucially YouTube needs to reassess its relationships with content creators and owners.

When the first YouTube stars started to rise to prominence YouTube was almost positioned as a benefactor, giving the gift of a platform for these people to become stars. But now, a few years on, with millions of subscribers each, these stars are beginning to understand their real potential. In just the same way that a traditional TV star does not feel a debt of gratitude or a commitment to life long servitude to the TV channel that broke him or her, so YouTube stars are now beginning to reassess their options. The online video landscape though is dramatically less competitive than the TV landscape so options are limited. But where there is demand for change and no monopoly of supply of content, change will come.

This is the context into which new video service Vessel has launched, offering YouTube stars cold hard cash payments and significantly bigger revenue shares, in return for giving just a few days of exclusivity. Be sure that few days window will change, but for now it is a low risk, high gain option for YouTube stars. Expect plenty more to follow Vessel’s lead.

Their demands include an effective Most Favoured Nation clause whereby anytime she uploads any music to the web she must upload it also to YouTube at exactly the same time. The contract also states a five year period and that failure to sign the contract will result in YouTube blocking both her channel and Keating’s ability (via Content ID) to get revenue from her own music uploaded without permission by others. The implications are:

Music must always be available free on YouTube first on the web

Artists must take a 5 year bet on streaming, even though there are massive doubts about its sustainability for artists

But it is the Content ID clause that is most nefarious. Content UD is not an added value service YouTube provides to content owners, it is the obligation of a responsible partner designed to help content creators protect their intellectual property. YouTube implemented Content ID in response to rights owners, labels in particular, who were unhappy about their content being uploaded by users without their permission. YouTube’s willingness to use Content ID as a contractual lever betrays a blatant disregard for copyright.

Asymmetrical Conflict

Zoe Keating is a rare talent and also a rare voice. She is willing to expose her entire digital music commercial life in a way very few artists are willing to. She is standing up to YouTube in a David and Goliath like manner but the deck is stacked against her because YouTube is able to abuse its de facto monopolistic position without any fear of regulatory intervention.

If they get their way with independent music creators, expect them to take the exact same approach to other independent video creators in a bid to neuter the threat from disruptive new entrants like Vessel. Rather than simply try to future proof itself against the emerging competition YouTube should focus on trying to be the best possible place for its creators to be to build prosperous careers. Instead it is trying to lock them in like prison inmates.

Ultimately though this sort of action from YouTube reveals strategic hubris, arrogance and complacency. All of which are classic signs of an incumbent company teetering on the brink of disruption. As the Enron experience showed us, no company is too big to fail. And as my former colleague Michael Gartenberg used to say ‘cemeteries are full of irreplaceable people’.